Earnings Preview: Hewlett-Packard, Marvell Tech, Aeropostale

Analyzing recent option activity ahead of earnings from Hewlett-Packard Company (NYSE:HPQ), Marvell Technology Group Ltd. (NASDAQ:MRVL), and Aeropostale Inc (NYSE:ARO)

May 20, 2015 at 2:18 PM
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Among the stocks preparing to unveil earnings after tomorrow's close are computer concern Hewlett-Packard Company (NYSE:HPQ), semiconductor specialist Marvell Technology Group Ltd. (NASDAQ:MRVL), and retailer Aeropostale Inc (NYSE:ARO). Below, we'll take the pre-earnings temperature of HPQ, MRVL, and ARO.

  • Over the past eight quarters, HPQ has averaged a single-session post-earnings swing of 9%. This time around, the options market is pricing in a slimmer 4.9% move, based on the equity's near-term at-the-money (ATM) straddle. In the options pits, put buying has picked up speed in recent weeks, per HPQ's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.64, which ranks in the 71st annual percentile. Meanwhile, premium on the security's front-month options is currently inflated -- from a volatility perspective -- as its Schaeffer's Volatility Index (SVI) of 28% sits higher than 65% of similar readings taken in the past year. Technically speaking, the stock has been losing ground since hitting a three-year high of $41.10 on Jan. 9, down 20%. More recently, Hewlett-Packard Company has found a stern layer of resistance in the $33.50-$34 region, and was last seen lingering near $32.96.
  • Call buyers have set their sights on MRVL in the weeks leading up to its scheduled announcement. In fact, the equity's 10-day ISE/CBOE/PHLX call/put volume ratio of 41.99 is docked just 11 percentage points from a 52-week peak. Good news for those purchasing the equity's front-month options -- the stock's SVI of 34% rests lower than 68% of all comparable readings taken in the past year. In other words, premium on the short-term contracts is pricing in relatively low volatility expectations at the moment. Looking back over the past eight quarters, MRVL has averaged a single-session post-earnings move of 3% -- less than the 4.8% the stock's near-term ATM straddle is pricing in for this report. Technically speaking, the shares could use a post-earnings shot in the arm. Marvell Technology Group Ltd. has shed 15.7% since notching a three-year peak of $16.78 in February to linger near $14.14, with recent rallies quickly halted by the equity's 200-day moving average.
  • ARO option traders have been growing increasingly skeptical ahead of earnings. Over the past two weeks, ARO's 10-day put/call volume ratio at the ISE, CBOE, and PHLX has jumped to 1.33 from 0.32, and now ranks in the 98th percentile of its annual range. The stock's front-month options are priced at relatively tame levels -- its SVI of 78% is docked higher than 43% of all comparable readings taken in the last 12 months. History appears to side with the put buyers, considering ARO has averaged a single-session post-earnings move of 16% over the past eight quarters -- each one occurring to the downside. This quarter, the options market is expecting a bigger 19.5% swing, per the security's short-term ATM straddle. Aeropostale Inc's post-earnings price action just echoes the stock's longer-term technical struggles, with ARO staring at a 42% year-over-year deficit. Today, however, the shares are 3.2% higher at $2.56, thanks to an earnings-induced halo lift from sector peer American Eagle Outfitters (NYSE:AEO).
 

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